Thanks for this warning. Can I ask how much the penalties ended up being in your case? And did you eventually have to file all the back returns anyway?

The penalties were brutal - about $5,200 for just two years of unfiled S corp returns. They hit you with $435 per month for up to 12 months per unfiled return. And yes, I still had to file all the back returns anyway, plus pay a CPA to help me sort through the mess. The worst part was reconstructing records from years ago. All told it probably cost me close to $8,000 including penalties, professional fees, and state filing costs to clean it all up. Definitely take care of this now while everything is still fresh and you have all your records easily available.

Great point! I was wondering about this because I have the opposite situation - I paid some personal expenses from my business account. How would that be handled on the corporate return?

So even if I explain to the IRS that I couldn't file accurately because my employer hasn't given me my W-2, they'll still charge penalties if I end up owing?

Exactly. The IRS doesn't care why you couldn't pay on time - they only care that you didn't pay by April 15. Your issue with your employer is separate from your obligation to pay taxes on time. That's why you need to make your best estimate and pay that amount by the deadline. Think of it this way: the IRS considers your taxes due as you earn income throughout the year. The April 15 deadline is already a grace period to finalize everything. So waiting on documents doesn't extend your obligation to pay what you already owe.

I went through this in 2023 and couldn't get the penalties removed despite documenting all my attempts to get my W-2 from my ex-employer. The IRS agent told me it's my responsibility to estimate and pay on time regardless of having the final documents. It really sucks but that's how they enforce it.

But if you warn them, won't they just hide the evidence better? I had a former friend who was doing something similar and when someone in our group warned him, he just got more sophisticated about hiding it. Sometimes people need to learn consequences the hard way.

That's a fair concern. If someone is determined to commit fraud, a warning might just make them better at concealing it. However, sometimes people genuinely don't realize the severity of what they're doing - they might see it as "bending the rules" rather than committing a federal offense. If you think your cousin might be receptive, a gentle approach might work: "Hey, I'm concerned about what you told me about your taxes. Those penalties can be really serious." But if they've shown they don't care about the rules or might become defensive, then you're right that a direct confrontation might not help the situation.

Is there any way to find out what happened after you submit a tip? Like do they tell you if they investigated or collected more tax? I reported an employer a few years ago who was paying people under the table but never heard anything about what happened.

Does this also happen if you claim education credits? My transcript is taking forever to update and I claimed the American Opportunity Credit.

Education credits like the American Opportunity Credit don't trigger the automatic mid-February hold like EITC and ACTC do. However, they do often get flagged for additional verification, which can slow down processing. Education credits have been subject to higher scrutiny in recent years due to increased fraud, so returns claiming them sometimes go through additional review steps. This doesn't mean you did anything wrong - it's just an extra verification layer that can add a week or two to processing time and delay transcript updates.

Tax advocates are only for hardship situations now. They don't take cases just for checking status or transcript issues unless you can prove immediate financial hardship (eviction, utilities being shut off, etc). Found that out the hard way last month!

This is really interesting! Do you know if he does these showcase projects in his own home or just for select customers? And does he still write off the full cost or just a portion?

He typically does these for customers, not in his own home. The key is that there's a clear business purpose that's documented - he has customers sign a marketing release allowing him to photograph, film and show the project to potential clients. He even hosts small open houses where prospective clients can see the finished work. His accountant categorizes these as marketing expenses, but only the portion that's discounted. So if a $10,000 job is done for $6,000, he can write off $4,000 as a marketing expense. He's very careful to document everything and has a written business policy about these showcase projects. I still think your own home would be much trickier to justify, but talking to a tax pro about a formal "demonstration project" policy might be worth exploring.

The mileage tracking is so crucial. I neglected this my first year and probably lost thousands in deductions. Do you know what the rate per mile is for 2025? And does MileIQ work automatically or do you have to remember to turn it on?